New Delhi must choose between Iran's gas and U.S. amity

[BlackSonic]

India always knew there would be a price to pay for its growing relationship with the United States and one of those bills is coming due at the end of next month.

That's the deadline the Iranian government has given New Delhi to quit dithering and decide whether it is in or out of a $7.5-billion agreement to run a pipeline from Iran's massive South Pars offshore natural gas field.

But India has already come under pressure from Washington not to get involved in the deal with the Tehran regime against which the U.S. is driving international sanctions because of its supposed nuclear weapons program.

New Delhi and Indian companies have therefore been very wary of laying themselves open to economic sanctions from the U.S. and Washington's allies in the European Union, which are using embargoes to try to force Tehran to halt its nuclear development program.

But India's conundrum is that it produces only half the natural gas it needs to generate electricity. And with Asia's third largest economy bouncing upwards at growth rates of up to eight per cent a year, by 2025 it may need 400 million cubic metres of gas a day, double its current demand.

Iran's South Pars field, the world's second largest with an estimated 14 trillion cubic metres of natural gas, is the obvious source and for nearly two decades there have been talks of varying intensity to build a 1,500-kilometre pipeline across southern Iran and through Pakistan to India.

Pakistan has come under just as much pressure from Washington as India to stand back from the Iranian pipeline deal. But the Islamabad government seems more willing to risk American ire. In May, Tehran and Islamabad signed a long-term deal which will see Iran delivering to Pakistan more than 21 million cubic metres of natural gas a day by 2014.

Local media in Iran recently reported that over 900 kilometres of the eastward pipeline from the South Pars field has been constructed and it will soon reach the port of Chabahar close to the border with Pakistan.

Pakistan expects to take three years to build its section of the pipeline through Baluchistan and across Sindh province to the border with India.

Thus far India has avoided giving a definitive answer to the question of whether it is in or out by saying it has problems about the pricing and about the security of supply through Pakistan, a past and present regional rival with which India has fought three wars since 1947. Both have nuclear weapons.

New Delhi wants Tehran to stick to the price of $3.20 per million British Thermal Units which they agreed on in 2007. Since then Iran has raised the price to $8.30 per million BTUs, and Tehran wants to review the price every three years.

While price and security are real issues, so is the pressure from Washington.

The recent visit of President Barack Obama to New Delhi and Mumbai put the seal of approval on an abrupt renaissance in the India-U. S. relationship launched by former president George W. Bush four years ago.

He offered and followed through on a campaign to get international acceptance of India's nuclear program which, with some don't-ask-don't-tell caveats, includes recognition of India as a nuclear weapons power.

Obama's visit sealed this with agreements and promises of a burgeoning trade and investment relationship. The president also said he believes India should have a permanent seat on the Security Council of a reformed United Nations. Implicit too is a security alliance, especially in the face of expansionist policies by China in Asia.

Clearly New Delhi's relationship with Washington is now too valuable and important to risk jettisoning.

But Iran is by far the most convenient source of India's growing demand for natural gas. There are, of course, large reserves in Central Asia, but when it will be practical to run pipelines across Afghanistan is anyone's guess.

So far India has managed to keep under the bar of U.S. sanctions, which come into play against any country or company that invests more than $20 million in Iran's energy sector in any 12-month period.

Officials in India's Ministry of Petroleum and Natural Gas are therefore sitting down with their calculators and working on an alternative supply chain. This would involve bringing the commodity to India in the form of liquefied natural gas carried by tankers, probably leased not bought, from Japan and South Korea.

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